FMG Newsletter

Log Market Update

Headwinds continue to hit our industry on all fronts. With both of the major political parties looking to tinker with the ETS and limit planting, we face an uncertain future.

Likewise, the heady days of log export are certainly looking under pressure. The crucial China market appears to be undergoing a structural change, with apartments being overstocked and construction very subdued. The market hit rock bottom in June with A Grade logs selling for $USD105 CFR, some $USD30 down on April pricing. There are some glimmers of hope with August pricing expectations around $115. Freight rates continues to be under the pump with a slower global economy, forecasters are looking at $USD25-$27 to ship from North Island ports into China.

All other countries looking to supply cannot withstand this level of pricing and as a result log inventory in China is dropping. There has been significant investment in sawmilling in South America, limiting available export logs for when there is some improvement.

Domestic processors are also feeling the pinch, with the housing boom running out of steam. There has been significant competition for timber sales and mills are now running reduced shifts. There is some hope that New Zealand may shake off this lethargy after the election and that the record immigration levels may kick start construction again.

One opportunity that has opened up recently has been to supply Macrocarpa logs into China for coffins. FML was approached by an old friend – Gordon Coles and together the business has started out of Christchurch. The first block harvested was for a long standing client – Murray Robb and this order was completed in early July.

Introducing Forever Forests

Forest Management Group is proud to introduce their new addition – Forever Forests.

Forever Forests is a native forestry company that specialises in registering native and mixed forest areas into the Emissions Trading Scheme.

We encourage any landowners with native forest areas to contact us for a free initial assessment.

Emissions Trading Scheme – Carbon Price Update

The ETS is a market-based policy tool designed to reduce greenhouse gas emissions by putting a price on pollution. Participants are required to buy carbon credits (NZUs) to offset their emissions. Each NZU equates to 1 tonne of carbon dioxide.

NZUs started 2023 at a lower level than those seen last year with the NZU price declining into the mid-low $30 range. The carbon market weakness was driven by Cabinet's decision to not follow the advice of the Climate Change Commission and to not adopt the higher auction price limits, political uncertainty, increased supply from sellers and recent consultations suggesting potential changes to the ETS.

However, during July, the NZUs market was rallied by news of the judgement by the High Court in favour of Lawyers for Climate Action NZ. The market has since rebounded and has settled at around $50 per NZU.

The Lawyers for Climate Action NZ filed High Court proceedings against the Minister for Climate Change to seek a ‘judicial review’ of Cabinet’s decisions about the NZ ETS settings in late 2022.

A judicial review asks the High Court to assess whether the Minister upheld the law when making the decision about the NZ ETS settings. They claimed the government had failed to consider the emissions budgets and NDC when making their decision.

These legal proceedings were set to go to court, but they have now been stopped because James Shaw accepted that the Lawyers for Climate Action NZ were correct in their claim. The government has consequently accepted the 2024-28 CCC recommendations for auction unit limits and price control settings. These changes include the following:

A significantly increased trigger price for the Cost Containment Reserve (CCR).

A two-tier cost containment reserve trigger price will also be introduced in the December 2023 auction. The first-tier containment reserve trigger price will increase from $82 to $173 in the December auction.

Increased Auction Floor Price.

The auction price floor settings will rise from the current level of $33.06 to $60 in December 2023.

Decreased NZU supply at auction.

The 2023 auction volume decreases from the current level of 17.9m NZUs to 15m NZUs.

Longer term, the fundamentals point towards a higher carbon price being needed to drive the emission reduction change required to meet the 2030 and 2050 goals. The recent acceptance of the CCC recommendations aligns with this and has set a pathway of an increasing price for NZUs supplied from the government auctions.

If you have any questions, please give Adrian a call on 027 266 0414.

Establishment 2023 Update

The winter planting season is tracking well as we come to the end of July. This year is our largest planting season to date, coming in at approximately 7,000 ha spread across the regions:

Roughly 92% of our establishment is greenfield, with the vast majority intended as production timber forest. Our 2023 establishment programme is estimated to sequester approximately 2.1 million tonnes of CO2 by 2040, and produce 3.4 million tonnes of sustainable wood products at harvest.

It has been a busy summer of grazing, land prep and spraying to ensure all sites were ready to go for the start of winter. Having sites well prepared for establishment is essential for ensuring a good strike in seedlings. A wet few months leading up to planting has resulted in wet ground conditions, causing access to be somewhat challenging in some sites. It is fantastic to have contractors who are actively engaging with health and safety conversations and procedures to ensure everyone out in the hills is safe.

We have even managed to get Glenn Moir out for a day of plotting to remind him of his glory days.

It will be a busy spring for spraying all the blocks, with a combination of crews on the ground spot spraying, and choppers in the air to get through the programme.